& cplSiteName &

The Optical Market: A Health Check

Carolyn Mathas
Prime Reading
Carolyn Mathas
2/13/2014
50%
50%

As high-speed network infrastructure rollouts and datacenter builds continue, the optical components and systems sectors are delivering ever more efficient transport capabilities. Fueled by the continued migration to all-optical networks, the promise of 100G, and the increasing volume of data being shipped around the world's wide area networks, global investments are climbing. (See 100G Action Spurs Optical Optimism.)

So how's the optical transport market doing? And feeling?

Light Reading asked a number of industry leaders and analyst about what they saw in 2013 and what they're expecting in 2014. There were shining stars in 2013, as there will be in 2014, but also some pockets of the market that just aren't going to move.

Optical transport systems
According to Sterling Perrin, senior analyst at Heavy Reading , "optical transport is a tough market. It's competitive and there is nowhere near the growth of the past -- and we won't see that growth in the future. The area is fragmented, there are a lot of players and, while network traffic continues to grow rapidly, operator revenues can't keep pace. The mission of transport is to lower the cost-per-bit for operators, so the suppliers live in a world of constant price-cutting."

According to Perrin, what growth there is can be found in the core network transport market, which will outperform the overall market in the coming years. Heavy Reading expects the market for core optical transport system to grow from US$4.6 billion in 2013 to almost $5.9 billion in 2017. By contrast, the metro systems market is somewhat stagnant.

Table 1: Worldwide Optical Transport Revenue by Segment, 2012-2017

In US$ millions 2012 2013 2014 2015 2016 2017 CAGR 2012-2017
Metro $7,793 $7,847 $8,082 $8,303 $8,282 $8,195 1.0%
Growth 0.7% 3.0% 2.7% -0.2% -1.0%
Share 65.2% 63.1% 61.9% 61.1% 59.8% 58.3%
Core $4,162.6 $4,596.4 $4,978.8 $5,275.0 $5,557.6 $5,865.2 7.1%
Growth 10.4% 8.3% 5.9% 5.4% 5.5%
Share 34.8% 36.9% 38.1% 38.9% 40.2% 41.7%
Total $11,955.7 $12,443.5 $13,061.0 $13,577.6 $13,839.5 $14,060.5 3.3%
Growth 4.1% 5.0% 4.0% 1.9% 1.6%
Source: Heavy Reading

Beneficiaries of the growing demand for 100G systems include the top four players -- Alcatel-Lucent (NYSE: ALU), Huawei Technologies Co. Ltd. , Ciena Corp. (NYSE: CIEN), and Infinera Corp. (Nasdaq: INFN) -- and, to a lesser extent, the next tier of vendors, including Cisco Systems Inc. (Nasdaq: CSCO), Coriant , and Ericsson AB (Nasdaq: ERIC).

"The strength of core networks accounts for the strength in North America, which grew 13% in 2013, faster than the 10% overall market growth. China is slowing, but still showing growth," says Perrin. "India is a wild card given the political situation over the past couple of years. I thought it would have done better in 2013, but at some point, it will be an opportunity," he adds. (See 'China Hockey Stick' to Sweep Through Optical.)

For the coming year, Perrin identifies a number of trends in components, including: continuing strength in 100G and core networks in general; flex grid or flex spectrum; and ROADMs, which are beginning to do well.

Finisar sees a bright light
For optical transport systems that employ WDM, there are a handful of key component suppliers, namely Finisar Corp. (Nasdaq: FNSR), JDSU (Nasdaq: JDSU; Toronto: JDU), CoAdna Photonics Inc. , and Nistica .

Jerry Rawls is exuberant when he talks about the progress of Finisar, where he is executive chairman. "2013 was an exciting year. It was the company's 25th anniversary and the first year ever that the company hit $1 billion in revenues," he says.

"The trend is to develop faster interconnects and optical transceivers for datacenters. Until recently, 1Gbit/s datacenters were copper, cat cable, RJ-45 jacks. In just three to four years, based on advances in speed, 1Gbit/s moved to 10Gbit/s, which is optical, not copper," Rawls explains.

Finisar is clearly expecting high demand, as it is expanding manufacturing, building a 400,000 sq. ft. facility in China, as well as other facilities for 10Gbit/s and 40Gbit/s. The latter will continue to show strength, according to Rawls, as the cloud datacenter transitions to 40Gbit/s. The company expects to see increasing demand from the US, China, and Europe.

As for the future, Rawls says the metro transport market isn't having much impact yet on a revenue basis, but as systems are launched for metro, accounting for 3x to 5x volume increases, that will likely trigger a new multi-year trend. Line cards will be optimized for metro, size, power, specs and cost, and lower cost for metro will drive business as well, Rawls believes.

And clearly, Finisar is gearing up for greater demand for 100G products. (See Finisar Buys Its 100G Buddy.)

On the subject of M&A, the Finisar man notes a shift in the optical equipment sector. "An interesting event was the privatization of NSN and Tellabs under Coriant by Marlin Equity. This was a private equity deal rather than a consolidation of systems companies. That's a new chapter of consolidation at the transport level," notes Rawls.

Next page: Datacenter drivers for NeoPhotonics, JDSU

(7)  | 
Comment  | 
Print  | 
Newest First  |  Oldest First  |  Threaded View        ADD A COMMENT
Joe Stanganelli
50%
50%
Joe Stanganelli,
User Rank: Light Sabre
3/3/2014 | 4:40:33 AM
Re: M&A
@DOShea: That's another great point.  Reminds me of all the speculation about Microsoft buying Yahoo after the latter had already snubbed them and then YHOO's stock started tanking because of management issues.  Something tells me there was an active attempt to pump the stock price back up through those rumors.
DOShea
50%
50%
DOShea,
User Rank: Blogger
3/2/2014 | 12:22:11 PM
Re: M&A
...and especially if the perceived price of Finisar keeps rising, then perhaps Cisco would shy away (Maybe Facebook will buy Finisar, since Zuckerberg seems unafraid of big price tags). I could certainly see more consolidation in this part of the optical sector, one way or another.
Joe Stanganelli
50%
50%
Joe Stanganelli,
User Rank: Light Sabre
2/28/2014 | 11:58:20 PM
Re: M&A
I dunno... In my experience, the more speculation there is about a particular major company acquiring another particular major company, the less likely that's going to happen... and reports of Cisco being mentioned as a possibility to buy Finisar are so common these days that I think that if anyone does acquire Finisar, it almost certainly WON'T be Cisco!  ;)
danielcawrey
50%
50%
danielcawrey,
User Rank: Light Sabre
2/14/2014 | 3:19:48 PM
Re: Great to see bullish nature
Good to see that there is a 100G trend approaching. With things like big data becoming a huge facet of networking going forward, being able to handle all this data is going to fall upon the optical market.

They will need to steadily supply the gear and throughput to make this all happen cohesively. 
CMathas
50%
50%
CMathas,
User Rank: Blogger
2/13/2014 | 2:27:09 PM
Re: M&A
If it's true, the price for Finisar can't help but benefit from the buy recommendations that stock analysts are putting out. The latest one I saw was to value the stock at $30. James Kisner, the analyst from Jefferies & Co. cites strong data center optics demand trends and spending expectations for 2014 for his revised price target. So, the purchase price seems to be moving up...

 
DOShea
50%
50%
DOShea,
User Rank: Blogger
2/13/2014 | 11:59:24 AM
M&A
Should be inteeresting to see what happens the next few months after Finisar's recent deal. There has already been some speculation about Finisar getting acquired, possibly by Cisco.
Ray@LR
50%
50%
Ray@LR,
User Rank: Blogger
2/13/2014 | 9:47:44 AM
Great to see bullish nature
There's a real sense of renewed opportunity in the 100G core and datacenter markets, and let's see if metro drives as much business as some expect.

This is going to be intersting to track!
From The Founder
Kicking off BCE 2017, Light Reading founder Steve Saunders lays blame for NFV's slow ramp-up and urges telecom to return to old-fashioned standards building and interoperability.
Flash Poll
Live Streaming Video
Charting the CSP's Future
Six different communications service providers join to debate their visions of the future CSP, following a landmark presentation from AT&T on its massive virtualization efforts and a look back on where the telecom industry has been and where it's going from two industry veterans.
LRTV Custom TV
VeEX at ANGA COM

6|27|17   |     |   (0) comments


At ANGA COM 2017, Cyrille Morelle, president and CEO of VeEX, updates Alan Breznick with VeEX's new products and technology. This includes VeSion cloud-based platform for network monitoring, AT2500-3G advanced spectrum analyzer and MTTplus-900 WiFi Air Expert module. He also comments on DOCSIS 3.1 deployment and Remote PHY technology.
LRTV Custom TV
The Overall Objective Is to Win the Game

6|26|17   |     |   (0) comments


SCTE•ISBE's Chris Bastian discusses Energy 2020's success to date and the importance of a flexible approach that allows for changes in specific strategies in order to reach significant milestones.
LRTV Interviews
CenturyLink: Let's Get Past SD-WAN Hype

6|23|17   |   04:02   |   (0) comments


Technology becomes a "shiny object" unless it's properly focused on solving business needs for enterprise customers, says Bill Grubbs, network solutions architect for CenturyLink. He explains to Light Reading why SD-WAN deployments have to be tailored to specific needs – and more.
Women in Comms Introduction Videos
Infinera's Sales Director Paints Tech's Big Picture

6|21|17   |   4:14   |   (1) comment


Shannon Williams, Infinera's director of sales, shares how she achieves work's many balancing acts -- between her role and the broader company, today and tomorrow's tech and more.
LRTV Custom TV
SD-WAN Innovation & Trends

6|20|17   |     |   (0) comments


Versa CEO Kelly Ahuja discusses with Carol Wilson the current status and trends in the SD-WAN market, Versa's innovation around building a software platform with broad contextualization, and the advantages that startups can bring to the SD-WAN market.
LRTV Interviews
Ovum's Dario Talmesio on 5G in Europe

6|20|17   |   02:16   |   (0) comments


At 5G World 2017, Dario Talmesio, principal analyst and practice leader on Ovum's fixed and mobile telecoms European team, explains the emerging trends amongst European operators as they prepare for 5G.
LRTV Custom TV
Putting Power on a Pedestal

6|19|17   |     |   (0) comments


ARRIS's John Ulm says a major accomplishment of SCTE•ISBE's Energy 2020 program is increased focus on power cost and consumption, including inclusion of energy requirements in operators' RFPs and RFIs.
LRTV Custom TV
Gigabit Access: The Last-Mile Pipe for All Future Services

6|19|17   |     |   (0) comments


A Gigabit access platform being deployed today must be able to deliver all types of services to an increasing number of devices. A non-blocking architecture is necessary to support the ever-increasing growth in bandwidth demand. The Huawei Gigabit access solution is based on a distributed design that is fully scalable to deliver a unprecedented performance.
LRTV Custom TV
Key Factors to Successfully Deploy an SD-WAN Service

6|19|17   |     |   (0) comments


As service providers transition their SD-WAN solution from trials and limited deployments into production at large scale, there are important considerations to successfully operationalize these solutions and realize their full potential, without adding complexity, introducing uncertainty or disrupting current business operations. Sunil Khandekar, CEO and Founder ...
LRTV Custom TV
IoT Solutions: Rational Exuberance

6|19|17   |     |   (0) comments


IoT solutions are morphing from hype into viable business opportunities. Huawei has the platform and ecosystem support to help carriers successfully address new business opportunities in the IoT space.
LRTV Custom TV
Realizing ICN as a Network Slice for Mobile Data Distribution

6|19|17   |     |   (1) comment


Network slicing in 5G allows the potential introduction of new network architectures such as Information-centric Networks (ICN) as a slice, managed over a shared pool of compute, storage and bandwidth resource. Services over an ICN slice can benefit from many architectural features such as Name Based Networking, Security, Multicasting, Multi-homing, Mobility, ...
LRTV Interviews
Ovum's Mike Roberts on 5G Uptake

6|19|17   |   04:08   |   (0) comments


Mike Roberts, research director for Ovum's service provider markets group, explains why he has boosted his 5G subscriptions forecast.
Upcoming Live Events
October 18, 2017, Colorado Convention Center - Denver, CO
November 1, 2017, The Montcalm Marble Arch
November 1, 2017, The Montcalm Marble Arch
November 30, 2017, The Westin Times Square
All Upcoming Live Events
Infographics
With the mobile ecosystem becoming increasingly vulnerable to security threats, AdaptiveMobile has laid out some of the key considerations for the wireless community.
Hot Topics
No Imagination: UK Chip Biz Goes Up for Sale
Iain Morris, News Editor, 6/22/2017
Does AT&T Deserve Time Warner?
Mari Silbey, Senior Editor, Cable/Video, 6/23/2017
Netflix's Lesson in Culture Expectation Settings
Sarah Thomas, Director, Women in Comms, 6/21/2017
Kalanick Steps Down as Uber CEO
Sarah Thomas, Director, Women in Comms, 6/21/2017
Like Us on Facebook
Twitter Feed
BETWEEN THE CEOs - Executive Interviews
Following a recent board meeting, the New IP Agency (NIA) has a new strategy to help accelerate the adoption of NFV capabilities, explains the Agency's Founder and Secretary, Steve Saunders.
One of the nice bits of my job (other than the teeny tiny salary, obviously) is that I get to pick and choose who I interview for this slot on the Light Reading home ...
Animals with Phones
Live Digital Audio

Playing it safe can only get you so far. Sometimes the biggest bets have the biggest payouts, and that is true in your career as well. For this radio show, Caroline Chan, general manager of the 5G Infrastructure Division of the Network Platform Group at Intel, will share her own personal story of how she successfully took big bets to build a successful career, as well as offer advice on how you can do the same. We’ll cover everything from how to overcome fear and manage risk, how to be prepared for where technology is going in the future and how to structure your career in a way to ensure you keep progressing. Chan, a seasoned telecom veteran and effective risk taker herself, will also leave plenty of time to answer all your questions live on the air.